Thank you so much OkieStache! What you're saying makes sense with the terms of the agreement and what I'm observing / learning.
The school is doing a DPO because they have wealthy parents that patronize the school they solicit for the raise and no bank would offer them terms anywhere near those terms and "crowdfunding" is hip right now.
Yes. They basically have said they're doing the DPO to get better terms than the current bank loan that they already have for the expansion. So this makes sense.
Interest only for half the term? Hopefully that means they added capacity during the last round of capital improvements and they (and you as an investor) are confident they can fill those seats (carpet circles).
They doubled capacity and have already filled the spaces with a wait list. The interest only for the first few years was a concern of mine so I'll look at that a bit more closely.
Are you sure it's a DPO? They are offering stock? If so, sounds like they are using the intrastate nature of the offering to exempt from federal registration.
If it is only a loan and not a stock offering, it is a loan to a known entity so you are in the best position to be able to evaluate risk. There is no "general" risk that is any higher or lower than any other loan. If you read the offering, I am sure it will say something like "You could lose all your money." They should have audited financials for you to review.
There is likely to be no market for the security so you should assume that you will have to ride it out to maturity.
They're calling it a DPO, but from the terms, it sounds like an unsecured loan NOT stock to me -- the contract refers to the "sale of Notes" and states that these are "restricted securities". I understand that we are assuming risk of default just like if we made anyone else a loan. And I know we won't be able to sell it easily -- we were planning to just ride it out to the end collecting interest & the repayment. Good call on reviewing the financials -- I will definitely do that. It's a good practice just to see what they're doing with our tuition anyway :-)
Since this is a tiny amount of your overall net worth, sounds like a good diversification that will do some good.
That was my initial impression, but I just wasn't sure. Now that I understand more from all of the lovely people here, I will take a closer look at the paperwork & financials with all of the above issues in mind.
Thank you all so very much!